The idea that Trump is accelerating US decline is demonstrably wrong in vital respects

A new breed of American declinists argue that by alienating old allies, President Donald Trump is undermining his nation’s standing in the world and ceding the mantle of global leadership to China. These critics point repeatedly to a Pew survey showing that Trump is far less trusted than President Barack Obama was, and Trump’s America is viewed far less favourably than Obama’s was.

Opinions, however, are flighty. Though Trump’s style may erode US cultural and diplomatic influence while he is in office, it is less clear he represents a permanent threat to America’s measurable economic and financial strength.

Even before Trump, the declinists were cherry picking data to show China gaining a greater share of the global economy at America’s expense. While America’s current 24% share looks much diminished compared to 30% in 1990, it is about the same as the 26% share in 1980 when China’s modern renaissance began. The reality is that China is gaining global economic share at the expense mainly of Europe and Japan.

America is a tested economic superpower, having survived 23 recessions and a Great Depression since 1900. China remains untested, having suffered not one outright recession since its modern renaissance began around 1980. It has yet to be seen just how well China will weather its inevitable first test.

Meanwhile, America is as great a financial superpower as ever. Central banks looking for a safe place to park funds usually buy US assets, typically Treasury bills, which show up as dollars in their foreign exchange reserves. Since 1980, the dollar’s share of foreign exchange reserves has held steady at around 66%. This suggests that the world trusts the United States to pay its debts – and trusts it more than Europe, Japan and China. Serious money does not equate America with Trump.

The American declinists also ignore the state of its rivals. The euro was born 18 years ago, ambitious to become a reserve currency, but recurring fears of a eurozone breakup limit the world’s willingness to trust it. Aging Japan’s stagnation has long capped the yen’s popularity. And outsiders remain more wary of the renminbi, owing both to China’s debt troubles, and the threat Communist rulers pose to free flows of capital.

In contrast, confidence in the dollar reflects longstanding faith in American financial and political institutions, and the free flow of capital over its borders. When businesses in two countries – say India and Argentina – want to conduct a deal, they almost always arrange payment in dollars. Nearly 90% of bankfinanced international transactions are conducted in dollars, a share that is close to all-time highs.

In some ways the reach of the dollar is expanding. When individuals and companies borrow from lenders in another country, they increasingly borrow in dollars, which account for 75% of these global flows, up from 60% just before the global financial crisis in 2008.

Most of the world now chooses to live in a dollar bloc. The share of countries that use the dollar as their main “anchor” – the currency against which they measure and stabilise the value of their own currency – has risen from 30% in 1950 and 50% in 1980 to 60% today.

Critically, there is no sign that the dollar’s status – as a reserve, an anchor, or the favoured currency for cross border transactions and loans – has declined since Trump took office. Even the weakening of the dollar under Trump provides more evidence of its dominant role: a weak dollar was a major driver of the global recovery in 2017, because in a dollar world, a cheaper dollar eases the cost of borrowing and helps other economies grow.

There is more at stake here than trust. Having the world’s favourite reserve currency is an economic advantage and a symbol of great power status, which is why China has been eager to establish the renminbi as a reserve currency. It has made no progress, however, and probably won’t as long as China’s financial markets remain largely closed, underdeveloped and subject to government meddling.

Many observers nonetheless assume that with China rising as an economic power, financial clout will follow. Perhaps, but the United States surpassed Britain as the world’s largest economy in the late 19th century, and the dollar did not fully displace British sterling as the leading reserve currency until World War II left British finances shattered. That doesn’t mean it will take World War III to end the dollar’s reign, but it will take a shock bigger than one unpredictable president.

Size alone won’t propel China to financial superpower status, either. For much of the period between 1450 and the late 1700s, China was the world’s leading economy but it never had the leading reserve currency because, then as now, its financial system lacked credibility.

No one doubts that China poses a growing challenge to the United States. But Trump’s critics may be overstating both the scope and inevitability of American decline, and the role one president can play in advancing it. To identify which nation the world really trusts in the long term, follow the money. And money still flows to the dollar — arguably the vote of confidence in America that matters most.